A prospect who is self-employed needs 3 years accounts verified by an accountant to secure a mortgage. He is up to date with accounts/tax returns
He has never used an accountant. I am meeting him later this afternoon for the first time. What would be your approach with a view to securing a deal at a fair price for both parties? I am not desperate for the work. I can foresee a potentially awkward situation where I might be recommending a 'duplication' of the work already done by them.
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What do they mean by verified?
Yes, a tricky one.
The best approach I'd suggest would be to ask to see how the tax return figures were prepared from the accounting records and then (if they do) confirm to the lender that the tax return income/expenses accord with the accounting records.
As far as price is concerned, if it was likely to be a one off then, on the assumption you'll still have to go through some AML and other new client setup, the minimum I'd charge would be £300 + VAT. I'd also make it clear that if I found significant errors, it would either mean double or treble that to prepare the corrected numbers.
If, like you, I was not desperate for the work, and I could not see a future with the client then I'd say that's all I was prepared to do, ie I'd certainly not prepare formal accounts duplicating the tax return.
At the end of the day, it's the client needing a mortgage and his choice to use that lender, ie it's a take it or leave it.
Agree with the above except that it's not just a matter of checking that accounts are in accordance with the accounting records. If, let's say, he has prepared his figures on a receipts and payments basis, and the net debtors or creditors he should have included are significant, the accounts will be in perfect accordance with the accounting records but they will not have been properly prepared. So you will need to see his working papers as well.
I would advise him to use another lender that will rely on SA302's or if that's not possible I would want to do the accounts from scratch, chances are they are way off what they should be anyway, and charge full beans.
Unringing a bell
The immediate problem I can see is you will be duty bound to encourage the client to amend any mistakes you find which assuming they are in HMRC's favour, he will be reluctant to do let alone pay you (otherwise he would have used an accountant in the first place). You will then be forced to report with all the usual head aches.
Problem as I see it.
The chances are that the accounts will be wrong and ofourse the tax return too.
You may get a fee for checking them and have to tell him he owes money.
Client goes off in sulk.
If you are not desperate I cannot see any point in getting involved.
I hate mortgage applications if they get turned down there is an air that it is our fault for not inflating the figures.
Don't quote yet
Could you tell them it's impossible to provide a fixed price quote as until you see how accurate their records are you won't know how much work is involved.
Ask them to provide their working papers and anything else you need to give you a feel for how much work is involved.
Then you can take a more informed view as to if it's worth taking on the client, how much to charge etc. without having to commit and ending up sorting out a mess for free.
If they refuse then let them be someone elses problem :-)
Treat it as normal accounts/tax prep
In these cases, we just go through the job as normal and charge a normal fee. If the underlying records are good, like any other client, our time will be minimal, i.e. just basic checking of balance sheet balances, brief review of P&L headings etc., but no specific "ticking & bashing" as we don't do that for most clients anyway. If the records are poor, then just like for other clients, we'll do a lot more checking and correcting as necessary.
We make it clear to the client that we're doing our normal job, for the normal fee, and nothing special, neither more nor less, because it's for a mortgage. We also make it clear that we're not "auditing" their accounts, either for themselves or the lender - we explain that we just prepare the accounts from the records and that's exactly the same as if they'd not done the accounts themselves.
If our version of the accounts turns out materially different from the clients, then we make it clear the client has to submit correcting tax returns to HMRC - again, discussed from the outset. If that happens and we become aware that the client won't resubmit, then it's an report under MLR.
I've always been of the opinion that it's very dangerous to do anything different or special when third party reliance is needed, such as for a mortgage lender. I think it's safer to do the exact same job in all cases as doing so will make a much stronger defence if things turn nasty. If we did a quick/cheap job and the accounts turned out to be wildly wrong, then we're facing a PI claim - why should we put ourselves in that position? Especially for a one-off client, it's not worth the risk, especially if you don't need the work. We basically say there are only two options - a full audit under auditing standards and tell them how expensive it will be, or our bog-standard accounts prep procedure - no middle ground, no other options. Keep it simple.